self-employed solo 401k employeer contributions are not deducting taxes

Forum|Forum|1 year ago
April 9, 2025
1 reply
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When you as the self employed business owner contribute to a solo 401k, the income of the business should reduce by what you contribute. When I use the self employed 401k section there is an employer contribution option but it does not reduce self employment taxes. Perhaps there is an error, but taxes are only being reducted by about 9% when I enter a contribution ammount, and I would expect 30% based on the tax rate of the business.

This article does not seemt to provide an option that is currently avaliable.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-401-k-thrift-savings-plan-tsp-contribution/L1qPkdFW9_US_en_US?uid=m99bes6f

This tutorial does not work out as described either.
https://ttlc.intuit.com/turbotax-support/en-us/help-article/self-employed/enter-solo-401-k-turbotax/L5WISqn0G_US_en_US

Technical Help

dmertz

Employee

Duplicate question.

The self-employed retirement deduction is a personal, above-the-line deduction, not a business expense. The tax code does not permit the self-employed retirement deduction to reduce self-employment tax.

compasslocalAuthor

Why would the contribution only increase my refund by 9.6% if my non self employment income is based on my federal tax rate of 22%? Im only seeing 960 increase for every 10k contribution.

https://turbotax.intuit.com/tax-tips/investments-and-taxes/the-tax-benefits-of-your-401k-plan/L8QHCzbiO

With tax-deferred 401(k) plans, workers set aside part of their pay before federal and state income taxes are withheld. These plans save you taxes today. Money pulled from your take-home pay and put into a 401(k) lowers your taxable income so you pay less income tax now.

For example, let's assume your salary is $35,000 and your tax bracket is 25%.

When you contribute 6% of your salary into a tax-deferred 401(k)— $2,100—your taxable income is reduced to $32,900.
- $35,000 x 0.06 = $2,100
- $35,000 - $2,100 = $32,900
The income tax on $32,900 is $525 less than the tax on your full salary of $35,000. So, not only do you get savings for retirement, you save on taxes today.

compasslocalAuthor

No body advertising the solo 401k mentioned effective tax rates. After standard deductions, etc my effective tax rate was only 7.5% soa 10k contribution to the 401k caused a tax refund of less than 1k. So the solo 401k is great for dumping loads of cash into retirement but terrible for tax deductions. It really only works well for an LLC taxed as scorp I think,